Financial Stability Report

What is Financial Stability Report?
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Financial Stability Report (FSR) is a biannual publication released by the central bank of India. FSR indicates the entire assessment on the stability of financial machinery of India and its backfire to the upcoming risks reflecting from global and domestic scenarios. Other than this, the Report also ponders over the issues related to development and regulation of the financial sector in the country.

Beginning from June 2015 issue, a special thematic discussion is included in the FSRs brought out in June. Consequently, the current issue of FSR seeks direct attention towards a thematic discussion on ‘An optimal configuration for the financial system – Banks versus Market’. The topic is chosen in the context of the progress towards turning the Indian financial system more effectual and pragmatic in supporting the economic growth.

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Major observations in FSR June 2016
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Following is a detailed description of the report –
● The financial system of India remains stable, despite the fact that the banking sector is confronting some critical challenges. As global uncertainties and varying geopolitical risks are on air, it would impact India. Moreover, the continuation of sound domestic policies and structural reforms remain the key for macroeconomic stability.

● While there is some strain in the corporate sector which manifested some signs of moderation in fiscal 2015-16, the risks of lower demand and weaker debt servicing capacity continue.

● The prognostication of a normal monsoon portends well for agriculture sector growth in fiscal 2016-17, while the spatial and temporal distribution matter as much as the total rainfall. Having a turgid impact on the broader political economy, the agriculture sector needs coherent policy measures to tackle sustained food price pressures and the overall rural distress.

● India’s external sector indicators unveil a relatively stronger position. Although, a faster growth in India’s oil import in terms of volume in recent years makes it imperative to be alert to the risks of commodity cycle reversals.

● Indian economy at this juncture of mid-2016 seems odd with regards to growth and investment potential. Paving the way for fiscal discipline, the endeavours on containing the revenue deficit and rationalising subsidies must be externally supported, even as gross fixed capital formation needs a boost.

● There is a slowdown in world trade and prevailing uncertainties in financial and commodities markets. The side effects of current soft monetary policies being pursued in many advanced economies without any clear signs of an exit strategy are becoming evident.

● The domestic business of scheduled commercial banks (SCBs) slowed in a grave manner during 2015-16. The gross non-performing advances (GNPAs) ratio increased in an aggressive manner to 7.6 per cent right from 5.1 per cent between September 2015 and March 2016. This emanates reclassification of restructured standard advances as non-performing due to asset quality review (AQR).

● Internationally, besides focusing on such measures related to fostering the capital and liquidity position of banks, the policies aimed at promoting public confidence and upholding the safety and soundness of the banking system with emphasis on issues of transparency and accountability assume a greater degree of significance.